1. Definitions
1. economics: the study of choices that people make to satisfy wants and needs ●
Want
Need

2. Definitions
microeconomics: the study of behavior and decision- making of small units within an economy (ie…consumers, producers)
macroeconomics: the study of behavior and decision- making of an entire economy (ie…inflation, unemployment, poverty)

3. The Dilemma
1. scarcity: condition that exists due to a limited amount of resources to meet unlimited wants and needs

5. The Dilemma
2. Shortage: When a good or service is unavailable

7. The Dilemma ● land: natural resources (ie…fossil fuels)
2. 3. factors of production: limited resources needed to produce goods and services
● land: natural resources (ie…fossil fuels)
● labor: human resources (ie…work force)
● capital: manufactured resources (ie…drill)
● entrepreneurship: risk-taker who pools resources together to create products

8. The Dilemma 4. Products ● good: physical object
● service: action performed for another

9. A factory is an example of this type of capital
Physical

10. If you are running a business that employs ppl to provide service for others, you are this
An entrepreneur

11. Iron ore, natural gas, fertilizer, soil and water are examples of this

12. An employees knowledge is this type of capital
Human

13. This occurs when there are limited quantities to meet unlimited wants
Scarcity

14. This occurs when a good or service is unavailable
Shortage

15. What type of capital is a dishwasher?
Physical

16. Choices, Choices, Choices!
trade-offs: an alternative that is sacrificed when a decision is made
● individuals: exercise or read?
● businesses: wakeboards or snowboards?
● societies: “guns or butter”?

17. Choices, Choices, Choices!
2. opportunity cost: the value of the most desirable alternative that is given up when a decision is made

18. Choices, Choices, Choices!
2. Guns vs. Butter
More money for military mean less consumer goods/food
3. A decision making grid can help you determine the opportunity cost of your decision
4. Making a decision "at the margin" is when you look at every increment of the curve & decide which increment has maximum benefit for minimum cost

19. The most desirable alternative given up for a decision
Opportunity cost

20. A decision between spending for military and spending for consumer goods is called
Guns vs. butter

21. This can help you determine some of the opportunity costs of your decision
Decision making grid

22. When you have a choice and you choose one thing and give up another, the one you didn’t choose is called
Opportunity costs

23. Production Possibilities Curves
1. What it shows
a. efficiency & growth or contraction of economy
b. alternative ways to use an economy's resources. An efficient economy uses its resources to make the most goods & services
c. Whether an economy has grown or shrunk
2. The opportunity cost of the decision to produce more of one good or service
3. Increasing costs = less output

24. max output due to efficient use of resources
unattainable output given available resources
underutilization or inefficient use of resources
max output due to efficient use of resources

25. Production Possibilities Curves
4. Law of increasing costs: when an economy increases the production of one item, the opportunity cost goes up
5. PP frontier shows the max amount that an econ can produce
6. What causes curve to move
a. to the left: loss of land, fewer workers
b. To the right: more workers, new technology

29. This shows alternative ways to use economic resources
Production possibilities curve

30. This type of economy uses its resources to make the most goods and services
Efficient

31. The opportunity cost of a decision can be examined by using this
Production possibilities curve

32. This curves when increased costs result in less output
Production possibilities frontier

33. An economy that uses all of its resources to make the greatest possible number of goods and services is called _______________
Efficient

34. The maximum amount that an economy can produce is shown by this
Production possibilities frontier

35. Production possibilities increase when this increases
Technology

36. Which way would the production possibilities curve move if the US lost Texas to Mexico?
Left

37. If something new was invented, which way would the PP curve move?
Right

38. Quick Write Economic System What to Produce? How to Produce?
For Whom to Produce?
traditional:
Social Units
command:
Government
market:
Individuals

39. Definitions
economic system: the method used by a society to produce and distribute goods and services into the marketplace
market: an arrangement that allows buyers and sellers to exchange things

40. Three Economic Questions
What to produce?
Military Goods
Consumer Goods

41. Nationalized Industry (Regulation) Free Enterprise (Deregulation)
Three Economic Questions
How to produce?
Nationalized Industry (Regulation)
Free Enterprise (Deregulation)

42. Nationalized Industry (Regulation) Free Enterprise (Deregulation)
Three Economic Questions
How to produce?
Nationalized Industry (Regulation)
Free Enterprise (Deregulation)

43. Three Economic Questions
For whom to produce?

45. Types of Economies 1. Traditional economy
a. Relies on habits & customs to answer 3 econ questions
b. children have the same jobs as their parents
2. Market economy (Free market)
relies on supply & demand to answer 3 econ questions
Economic efficiency, growth and freedom

47. Types of Economies 3. Command economy (centrally planned)
a. Government makes all decisions (sets goals) & own all land & capital
b. Each person has a job (lots of job security)
c. Lacks incentive
4. Mixed economy: supply & demand AND govt make decisions

48. A Continuum of Mixed Economies
North Korea
Hong Kong
Sweden
United States
China

49. Economic questions are what goods and services should be produced, how they are produced and who consumes these
Goods and services

50. Children tend to have the same careers as their parents in this type of economy
Traditional

51. The function of this is to distribute goods and services
Economic system

52. Economic efficiency, freedom and growth can be achieved in this system
Market economy

53. This type of economy relies on habit, custom or ritual to answer the three economic questions
Traditional economy

54. Free Market Economy 1. Specialization: make economy more efficient
2. Markets exist to allow people to buy what they need to consume & sell specialized goods & services the produce
a. factor market: firms purchase factors of production from households
b. Product market: households purchase the goods that firms produce
c. govt interferes more now

55. Free Market Economy 3. Adam Smith and the Wealth of Nations
self-interest: the pursuit of personal financial gain provides incentive or motivation in a free market, which results in a more prosperous society
invisible hand: the mutual interest of consumers and producers to pursue financial rewards is the regulating force in a free market

57. Free Market Economy Adam Smith and the Wealth of Nations
● laissez-faire: a policy of “letting them do as they please” with no government interference in the market result in a prosperous society
laissez-faire: a policy of “letting them do as they please” with no government interference in the market results in a prosperous society

58. Free Market Economy 4. Advantages
● economic efficiency: competition ensures an efficient use of resources, which results in the availability of quality products at reasonable prices

59. Free Market Economy Advantages
● economic growth: incentive to profit promotes innovation, which results in the start-up of businesses and the creation of new jobs, technology and wealth

60. Gross Domestic Product in 2008
Rank
Country
GDP 1
United States
$14,264,600 2
Japan
$4,923,761 3
China
$4,401,614
Source: International Monetary Fund

61. Free Market Economy Advantages
● economic mobility: economic choice and freedom can provide the opportunity for individuals who establish a positive “work ethic” to better themselves

62. Free Market Economy Advantages
● economic mobility: economic choice and freedom can provide the opportunity for individuals who establish a positive “work ethic” to better themselves

63. Income Mobility in United States

64. Free Market Economy
5. Disadvantages
● socioeconomic inequity: disparity in the distribution of wealth creates poverty, which contributes to social woes such as crime, illness, etc.

65. Income Distribution in United States
Source: Wikipedia

66. Income Mobility in United States

67. Free Market Economy Disadvantages
● economic exploitation: corporate greed contributes to the deterioration of the environment and viability of a shrinking middle class

68. Exploitation of Environment: Pollution
Source: Carbon Dioxide Information Analysis Center

69. Exploitation of Workers: Outsourcing

70. Exploitation of Workers: Insurance
Source: U.S. Bureau of Labor Statistics

71. Free Market Economy Disadvantages
● economic instability: deregulation creates “boom or bust” markets, in which unplanned and explosive economic growth is interrupted by periods of stagnation and/or recession

72. Boom or Bust: Instability in Market

73. Free Market Economy
6. Role of govt: to allow individuals to operate their business in ways that they think will maximize profit
7. Needs govt intervention to provide for things the market place does not address
8. motivating force: self interest, profit

74. One advantage of this economic system is that it encourages growth
Free market

75. These exist to allow ppl to buy what they need and consume and sell goods they produce
Markets

76. In a free market system, the role of this is to allow businesses to maximize profits

77. When firms purchase the factors of production from households, its called this
Factor market

78. Government intervention
To provide for things the marketplace does not address, the free market economy needs this
Government intervention

79. This motivates a manufacturer to sell a product
Profit

80. He was a free market philosopher
Adam Smith

81. The market in which a household purchases the goods and services that firms produce is called this
Product market

82. This is the motivating force behind the free market system
Competition or self interest

83. This type of market offers a wide variety of goods and services
Free market

84. Centrally Planned Economy
1. Socialism: use democratic means to distribute wealth; equality can only exist with political equality, use democratic means to distribute wealth evenly
The Redistribution of Wealth
private ownership = 80%
public ownership = 20%
government’s role: control the essential factors of production in order to provide basic necessities, such as education, health care, transportation, etc.

85. Centrally Planned Economy
2. Advantages of Socialism
socioeconomic equity: a more equal distribution of wealth results in a larger middle class
reduced poverty: contributes to less social woes such as crime, illness, etc.

86. Income Inequality Metric in 2005
Country
Gini Index
Denmark
24.7
Norway
25.8
United States
40.8
Source: United Nations

87. Murder Rate per 100,000 in 2007 Country Murder Rate Norway .78 Sweden
1.0
United States
5.5
Source: United Nations

88. Life Expectancy Rate in 2007
Country
Life Expectancy
Sweden
80.9
Norway
80.2
United States
78.2
Source: United Nations

89. Centrally Planned Economy
Advantages of Socialism
● economic stability: regulation stabilizes market which creates steady growth

90. Unemployment Rate in 2007 Country Unemployment Rate Denmark 1.6 Norway
2.1
United States
6.1
Source: United Nations

91. Centrally Planned Economy
4. Disadvantages of Socialism
● “big government:” large bureaucracy to plan and provide social services
● tax rate: 50%!

93. Centrally Planned Economy
Disadvantages of Socialism
● less incentive: lack of motivation!

95. Centrally Planned Economy
5. Communism: Central planned economy; central govt has all political & economic power
uses propaganda to inspire workers to increase production
authoritarian, violent revolution

96. Centrally Planned Economy
Soviet Union
Lenin introduced communism & central planning to Soviet Union
no incentives to produce led to inefficient agriculture & industry
Difficult transition from communism to market economy 
workers lose job security & guaranteed income
China: in transition from communism to market economy—mixed, but centrally planned

97. Centrally planned economy
In this system, government owns all land, makes all economic decisions and everyone has a job
Centrally planned economy

98. This country is an example of an economy that is mixed, but leans toward central planning
China

99. This Soviet leader introduced central planning
Lenin

100. When transitioning from central planning to a market economy, workers would lose this
Job security

101. Entrepreneurs would most likely prefer this type of economy
Market

102. There is little individual freedom, workers lack incentive and consumers needs are not met in this type of economy
Centrally planned

103. There is more interference by this now than there was during Adam Smith’s time
Government

104. Benefits of Free Enterprise
1. free enterprise: gives consumers freedom to make econ choices
profit motive
legal equality: guaranteeing same legal rights will maximize human capital
private property
competition

105. Benefits of Free Enterprise
2. role of consumers
Make desires known through purchases
interest groups: private organizations that attempt to influence public officials to vo te in ways that will benefit their group members

107. Benefits of Free Enterprise
3. disclosure laws: companies give consumers important info about products so that they are safer & more knowledgeable
4. Negative effects of regulation
Costs
Less profit
less growth
Higher prices
govt spending

108. A private organization that tries to influence public officials to act or vote in ways that will benefit the group’s members is called this
Interest groups

109. This group makes their desires known to businesses by the purchases they make
Consumers

110. Fuel efficiency stickers on cars are examples of this
Disclosure laws

111. Guaranteeing these will maximize the use of human capital
Legal equality

112. Businesses often find these costly to implement
Government regulations

113. Giving consumers the freedom to make choices is the purpose of this
The free enterprise system

114. Private property rights
Profit motive, legal equality, competition and this are the basic principles of the free enterprise system
Private property rights

115. Public disclosure laws
These require competition to give consumers important information about their products
Public disclosure laws

116. Promoting Growth & Stability
1. GDP: Total goods & services produced in a major prolonged fluctuation on the economy
2. business cycle: major prolonged fluctuation in the economy-- --market changes, not day to day

117. Promoting Growth & Stability
3 Promoting econ growth
high employment
steady growth
stable prices
4. Technology & productivity
Makes an economy stronger, more efficient
creates a higher standard of living by providing additional goods & services

118. Promoting Growth & Stability
5. Constitutional protections
property rights, protection of private property
Taxation: ppl have to pay the same amount
binding contracts 

120. This makes the economy stronger and more efficient
Technology

121. To promote this, the government grants this group copyrights and patents
Inventors

122. This is a major, prolonged fluctuation, not a day to day movement
Business cycles

123. The total value of all goods and services produced in an economy
Gross Domestic Product (GDP)

124. This guarantees private property, limits taxation and gives ppl the write to make contracts
US government

125. Policy makers try to maintain growth, stabilize government and keep this low
Unemployment

126. This creates a higher standard of living by providing additional goods and services
Technology

127. Providing public goods
1. Benefits to society are greater than costs
2. Examples: highways, libraries, national parks
3. free rider: you benefit whether you pay or not (ex. PBS)
4. Externalities
Positive: side effect that is good
Negative: side effect that is bad

131. An economic side effect that has unexpected benefits
Positive externality

132. If you consume a good or service but don’t pay for it, you are this
Free rider

133. If total benefits to society are greater than total costs, its called this
Public good

134. A highway is an example of this
Public good

135. An economic side effect that has unexpected undesirable consequences is called this
Negative externality

136. Providing a Safety Net 1. Safety net
provides for injured workers (Ex. OSHA) 
Joblessness 
national disaster (FEMA)

138. Providing a Safety Net 2. redistribution programs
TANF: gives cash to state for welfare programs
Social security: cash payments to elderly & disabled, retirement income from elderly
unemployment insurance
workman's comp
in-kind benefits: food stamps, subsidized housing (Section 8)

139. Unemployed benefits would be considered this
A redistribution program

140. Cash provided to states to run their welfare program is provided by this organization
TANF

141. Retirement income for the elderly is provided by this fund
Social security

142. Section 8 housing is an example of these type of benefits
In kind

143. This program takes money from your pay to give it to elderly and disabled ppl
Social security